SAN FRANCISCO — Underwriters are wanted for the deal that will allow California local governments to securitize the state government’s promise to repay money it is borrowing from the locals to help balance this year’s state budget.
The California Statewide Communities Development Authority plans to issue the debt, and released its request for underwriting proposals Wednesday.
As part of the budget revisions California adopted last month, the state triggered a provision from 2004’s voter-approved Proposition 1A, allowing the state to borrow 8% of local governments’ property tax revenue during the current fiscal year, which adds up to about $1.9 billion.
The state is required to repay the loan in 2013.
Proposition 1A also authorized local governments to borrow against the state loan receivable. The legislation implementing this year’s loan specifies that the state’s obligation to repay the loan falls only behind school funding and general obligation bond debt service, and furthermore requires the state government to pay the interest and cost of issuance.
“In theory it should not cost the city anything except the cost of city attorney review of the applicable agreement to sell the Prop. 1A receivable,” according to a California League of Cities report.
The CSCDA was the issuer for a similar program in 2005, after the state government borrowed from local governments’ vehicle license fee revenues.
Local governments will be looking for further clean-up legislation when the Legislature returns from summer recess Aug. 17, in order to facilitate the bond issuance, according to the RFP.
“Please address any issues that you believe exist relative to the statutory language that will enable this transaction,” is one of the questions posed to underwriters. “Please provide a listing of any changes you believe may need to be made.”
Proposals are due Wednesday at 5 p.m. Pacific Daylight Time.